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13 April 2017

President Trump issued on 31 March two executive orders directing federal authorities to (i) step up the collection of antidumping and countervailing duties and the prosecution of trade and customs law violations and (ii) prepare a report on significant U.S. trade deficits with other economies, including mainland China. These actions are part of a broader strategy by the new administration to take trade enforcement to a new level by levying remedies against economies that are seen as engaging in unfair trade or otherwise failing to play by the rules.

AD/CV DutiesIn August 2016 the U.S. Government Accountability Office reported that US$2.3 billion in AD and CV duties went uncollected over the previous 15 years, that 20 importers accounted for about half that amount, and that about 95 percent of the total was associated with importers of goods from mainland China. The GAO said that U.S. Customs and Border Protection was taking steps to improve AD/CV duty collections, such as revising bonding formulas and centralising the management of bonds, but lacked key information that could aid those efforts. The report also noted the challenge posed by the United States’ complex and retrospective AD/CV duty collection system.

The new EO focuses on strengthening bonding requirements for importers of goods subject to AD or CV duties for which CBP has no record of previous imports or has a record of the importer’s failure to pay AD/CV duties in full or on time. If a CBP risk assessment identifies any such importer as posing a risk to U.S. revenue, that importer would have to provide security for AD/CV duty liability through bonds and other legal measures.

House Ways and Means Committee Chair Kevin Brady (Republican-Texas) said this provision “operationalises new tools Congress put in place in the customs enforcement bill” enacted in 2016. Nicole Bivens Collinson, president, international trade and government relations, for Sandler, Travis & Rosenberg, said CBP has already reached out to trade groups to discuss how to meet the new requirement.

Trade and Customs Law ViolationsThe EO directs the U.S. Department of Homeland Security, through CBP, to develop and implement a strategy and plan for combating violations of U.S. trade and customs laws for goods and for enabling interdiction and disposal of inadmissible merchandise entering through any mode of transportation, including through methods other than seizure. Further, the EO enhances CBP’s authorisation to share with intellectual property rights holders any information (i) necessary to determine whether there has been an IPR infringement or violation or (ii) regarding goods voluntarily abandoned prior to seizure whose importation would have violated U.S. trade laws. Finally, the EO directs the Justice Department to work with DHS to develop recommended prosecution practices and allocate appropriate resources to ensure that federal prosecutors accord a high priority to (apparently criminal) prosecution of significant offenses related to trade law violations.

U.S. Trade DeficitsA new report on significant U.S. trade deficits with other countries will be prepared within the next three months. This report will inform the further development of the Trump administration’s trade policy, which is likely to be heavily focused on enforcement and “levelling the playing field,” as well as its approach to potential trade negotiations, including a renegotiation of NAFTA expected to get underway later this spring.

The EO suggests that the size of the U.S. trade deficit, which exceeded US$500 billion in 2016, illustrates that “for many years, the United States has not obtained the full scope of benefits anticipated under a number of international trade agreements or from participating in the World Trade Organization.” The EO appears to attribute the deficit to “unfair and discriminatory trade practices by our trading partners” that can “deny Americans the benefits that would otherwise accrue from free and fair trade, unduly restrict the commerce of the United States, and put the commerce of the United States at a disadvantage compared to that of foreign countries.” To address these challenges, the EO states, policy makers and trade negotiators must have access to “current and comprehensive information regarding unfair trade practices and the causes of United States trade deficits.”

The EO therefore directs the DOC and the Office of the U.S. Representative, in consultation with other federal agencies with relevant expertise, to submit within 90 days a report that identifies those foreign trading partners with which the United States had a significant goods trade deficit in 2016. According to press reports, these economies include mainland China, Japan, Germany, Mexico, Canada, Ireland, Vietnam, Korea, Italy, Malaysia, India, France, Indonesia and Taiwan. For each such economy this report will:

assess the major causes of the trade deficit, including, as applicable, differential tariffs, non-tariff barriers, injurious dumping, injurious government subsidisation, intellectual property theft, forced technology transfer, denial of worker rights and labour standards, and any other form of discrimination against U.S. commerce or other contributing factors (e.g., currency misalignment (not manipulation));

assess whether the trading partner is, directly or indirectly, imposing unequal burdens on, or unfairly discriminating in fact against, U.S. commerce by law, regulation or practice and thereby placing U.S. commerce at an unfair disadvantage;

assess the effects of the trade relationship on the production capacity and strength of the U.S. manufacturing and defence industrial bases;

assess the effects of the trade relationship on employment and wage growth in the United States; and

identify imports and trade practices that may be impairing U.S. national security.

Trump said this report will help pave the way for action to end “trade abuses,” and Commerce Secretary Wilbur Ross said some such actions could take place before the report is completed. However, Ross added that the commissioning of this report shows that the administration intends to “take a very measured and analytical approach” in identifying problems and determining whether solutions are needed. He also conceded that in some cases “we’ll conclude that there is no real action that should be taken;” e.g., if an individual deficit is due not to abusive practices but to the fact that the partner country is “better at making the product or can do it far cheaper than we can.”

House Ways and Means Trade Subcommittee Ranking Member Bill Pascrell (Democrat-New Jersey) criticised the EO, saying “we don’t need another study on trade barriers, we need a meaningful legislative agenda.” He noted that Democrats are “finalising a package of trade enforcement proposals to address fundamental and structural problems [that] will result in fairer trade and fair treatment for American workers.”

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